Dive Brief:

• Aeropostale on Monday gained court approval to pay expenses incurred by Versa Capital Management in readying a stalking horse bid to buy the teen apparel retailer out of bankruptcy, Bloomberg reports.

• The approval came as Aeropostale settled a beef with lenders that could have been an obstacle to the Versa bid, seen as the retailer's best chance to emerge from bankruptcy.

• Versa, which specializes in distressed investments, would pay an undisclosed amount for the bankrupt teen retailer’s investors and leases. Bids are due Aug. 18, with an auction scheduled for Aug. 22. 

Dive Insight:

This move by Versa’s Capital Fund III unit is Aeropostale’s last best chance at survival in a bankruptcy process marked by a rancorous dispute with Sycamore Partners (the private equity firm that acquired 8% of the company in 2013). Aeropostale had filed a lawsuit in the United States Bankruptcy Court for the Southern District of New York "to, among other things, preclude Sycamore from credit bidding its claims to purchase the assets of the company," an Aeropostale spokesperson last month confirmed to Retail Dive in email. 

Sycamore in 2014 provided a $150 million loan to Aeropostale with the stipulation that the retailer source much of its goods from Sycamore-owned MGF Sourcing, a clothing manufacturer and supply chain management company. Aeropostale has claimed that it has unearthed evidence that MGF’s terms were intentionally onerous. Sycamore hasn’t officially commented, but sources there told Reuters there’s no such evidence and suggested that the firm might file its own claims.

That dispute is ongoing, but Sycamore Partners (which may also bid on Aeropostale stores and assets, Bloomberg reports) had objected to paying Versa as much as $500,000 for its expenses, according to court papers. Sycamore let that go when a compromise over the source of the money was worked out, Bloomberg adds.  

If Versa prevails at auction, some 500 Aeropostale stores would remain open, saving thousands of jobs.